The system, whereby parents have to typically pay up to a month’s fees up front for childcare costs and then claim the money back, means that parents in England could be left out of pocket by £1,000 or more.
Save the Children is backing a legal challenge by single mum Nichola Salvato, who alleges that the system is unlawful and discriminatory.
The charity says that the policy disproportionately affects women, as more than 35,000 single mothers currently receive childcare support through universal credit, compared to 1,000 fathers.
Last week Ms Salvato was given permission by the High Court to proceed with a legal challenge against the Department for Work and Pensions over the upfront payment rule.
New figures based on data from a Freedom of Information (FOI) request made to the Department for Work and Pensions (DWP) reveal that women are much more likely to be affected than men, as 81 per cent of parents receiving childcare support through universal credit are single mothers.
Mothers have told Save the Children that they have taken out loans to pay for childcare, or have had to turn down better paid jobs or more hours, because under universal credit parents have to wait a month to be reimbursed.
The average cost of a childcare place for a one-year-old is £1,084, based on Coram Family and Childcare's 2020 childcare costs survey. The cost is based on 40 hours per week of nursery fees over a month, plus £150 deposit.
The FOI request to the DWP in December 2019 found that the number of single parent households in England with an entitlement to the childcare element of universal credit was made up of 35,680 women and 1,080 men.
Under universal credit eligible parents are reimbursed for 85 per cent of their childcare costs.
Becca Lyon, head of UK Child Poverty at Save the Children, said, ‘As a society, we believe women should have the same opportunities to work as men. But not only are women already shouldering most of the burden of childcare, they’re now being unfairly penalised by a system, which makes it even more difficult for them to go back to work.
‘Not only does this new system unfairly disadvantage women, it could also undermine the whole point of universal credit – to help more parents into work and boost their pay.'
Save the Children wants the Government to give parents the money they are entitled to for childcare under universal credit before they need to pay their nursery or childminder, instead of leaving them in arrears.
It says the Budget this week is a chance to improve the system before more parents, especially mothers, are pushed into debt and hardship.
Carolin Ott from law firm Leigh Day, who are representing Nichola Salvato’s challenge in the High Court, said, ‘Rather than dismantling the barriers to allow single mothers to work, the requirement to pay childcare upfront is placing significant obstacles in their path. We have seen examples where this has forced women to reduce the hours they are working, incur significant amounts of debt or even feel forced to give up work entirely.
‘The DWP continues to refuse to rethink its approach to the policy, despite the substantial amount of evidence which shows its disproportionate and detrimental effect on women and their families. Our client, who has recently been given permission to proceed with her legal challenge by the High Court, is arguing that the policy is discriminatory and irrational.’
The Government says parents can get help with upfront costs though the Flexible Support Fund (FSF) – a discretionary back-to-work grant which can be used to cover the first month’s childcare costs.
But Save the Children said this only pushes the problem back by a month, leaving parents facing a huge upfront bill in the second month. The grant is also only available to people starting a new job - parents returning from maternity leave or starting to pay for childcare for the first time do not qualify.
Tulip Siddiq MP, Labour's shadow minister for early years, said, 'It is shocking that parents on low incomes are being forced to stump up huge sums for childcare, waiting at least a month for the support they are entitled to. We know from many heart-breaking cases that this is driving families into poverty and debt.
'Childcare costs have soared under the Tories, so it is more important than ever that parents can access the childcare they need without falling in to debt. The Government must urgently fix this dangerous flaw in universal credit.
'By fixing this problem in the budget on Wednesday, ministers could help millions of working families and avoid the humiliation of defending this appalling policy in the High Court.'
A DWP spokesperson said, ‘Working parents can get more than £1,100 a month for childcare through Universal Credit, and help is available with any up-front costs.
'Those who want to know if they are eligible for help with childcare should visit www.understandinguniversalcredit.gov.uk.’
Case study
Ayo, a mum of one from London, had to resort to food banks to feed her two-year-old daughter after she had to borrow £1,590 to pay for childcare, plus a nursery deposit of £200. She said, ‘I’ve gone into quite a bit of debt to pay for my daughter’s nursery fees. I’ve had to use my credit card to pay for them a few times, and I’ve fallen into rent arrears because once I’ve paid the nursery, I can’t afford the full rent. I’ve also had to cut down on essentials like groceries. I’ve gone down to one meal a day, so I usually only have lunch and everything else we have in the house is for my daughter.
“The system doesn’t work. The upfront fees are deterring a lot of women from going back to work, because where are they going to get that money from? You don’t find that kind of money down the back of the sofa -- it’s unrealistic.
‘I’m happy with my career and I don’t feel like I should be punished for working. It’s sad that women like me have to make choices not to have kids or give up on their careers because the system is flawed.’
